By Andy Sambidge
International Monetary Fund says UAE is strong economy, backs cbank liquidity move.
The International Monetary Fund (IMF) said on Monday it was monitoring the situation in Dubai, adding that it welcomed the UAE Central Bank's move to support liquidity in the banking system.
In a statement, a spokesperson for the IMF said the organisation was awaiting "further clarification" from UAE authorities on how the debt issues would be addressed.
The statement read: “We are continuing to monitor the situation following the unexpected announcement by the Government of Dubai regarding a standstill on the debt of Dubai World and its Nakheel subsidiary, which has had an adverse impact on financial markets.
”The UAE is a strong resource-based economy and we welcome today’s announcement by the Central Bank of the UAE making available to banks a special additional liquidity facility. We look forward to further clarification by the authorities towards a cooperative mechanism to address the issues between these debtors and their creditors.”
The UAE central bank set up a facility on Sunday to support liquidity in the banking system as Dubai's government sought to delay debt payments from two of its flagship firms.
Dubai said on November 25 when it said it would ask creditors of Dubai World, the conglomerate behind its rapid expansion, and Nakheel, builder of its palm-shaped islands, to agree to a standstill on billions of dollars of debt as a first step to restructuring.
State-run Dubai World had $59 billion of liabilities as of August, a large proportion of Dubai's total debt of $80 billion and repayment of Nakheel's $3.5 billion worth of Islamic bonds, which were originally due to mature on December 14, was widely expected by the market to be met.
Last year, the UAE finance ministry poured $6.8 billion into bank deposits, the first tranche of a $19.1 billion rescue facility it set up to help lenders weather the onslaught of the global credit crisis.
It deposited another $6.8 billion into banks in November 2008, but has not made any statements since regarding the remainder of those funds. This came after the central bank set up a $13.6 billion emergency bank lending facility to combat the crisis.